Court OKs Agencies’ Bankruptcy Suit

A state appeals court has ruled that members of an Orange County investment pool can sue the brokerage firm they accused of helping bankrupt the county in 1994.

The Dec. 7 state appellate court ruling reversed a judge’s decision that the “Killer Bs,� a group of 10 public agencies, had no right to sue Merrill Lynch & Co. That judge ruled that only Orange County itself had the right to sue on behalf of the pool members.

The agencies are the cities of Buena Park, Yorba Linda, Atascadero, Claremont, Milpitas, Montebello, Mountain View and Santa Barbara; the Santiago and Yorba Linda Water districts; and the Buena Park, Yorba Linda, Santa Barbara and Montebello Redevelopment agencies.

The appellate court in San Francisco said California law allows the Killer Bs to sue Merrill Lynch for helping the former county treasurer, Robert Citron, breach his duty to the taxpayers and to pool members.

Citron later admitted to misleading investors and misappropriating public funds.

Saying the appellate judges got the facts and the law wrong, Merrill Lynch has asked the 1st District Court of Appeal in San Francisco to reconsider its decision.

The pool of public agencies claims nearly $80 million in lost principal and interest, plus legal fees and expenses from Merrill Lynch. Those damages could triple if a jury believes that the brokerage house violated federal racketeering laws by encouraging Citron.

Hoping to go to trial in the upcoming year, the agencies plan to seek “hundreds of millions of dollars from Merrill Lynch,� their attorney, Greg Call, said Wednesday.

The “Killer Bs� earned their name in 1995 when they refused to accept a settlement from the bankrupt county that would have given them 77 cents on the dollar for their investments. The vast majority of the 200 public agencies in the pool agreed to accept a share of whatever the county won in litigation.

But the other agencies didn’t trust the county to sue on their behalf and instead chose a second option offered by the county. “Option B� got them $24.5 million for dropping their lawsuit against the county in 1996.